Moving Forward in Balance: How Balancer Reshapes DeFi Liquidity and Governance

Balancer started as an “index fund on-chain,” allowing multi-asset pools with flexible weights, and has since evolved into a full liquidity infrastructure.

Through its Vault architecture, LBPs, and now V3’s Hooks and Boosted Pools, Balancer continues to push for higher capital efficiency and programmable liquidity.

Despite competition from Uniswap, Curve, and others, Balancer holds a niche in LSD liquidity and token launches, while maintaining its philosophy of balance in governance and design.

FROM INDEX FUND IDEA TO MULTI-ASSET POOLS: THE TECHNICAL STARTING POINT

Most people’s first memory of decentralized finance is Uniswap’s constant product formula: “x*y=k.” But at the same time, a group of engineers from Brazil and Canada were working on a different idea, closer to portfolio management than trading. Their question was simple: what if an on-chain pool could behave like an index fund that constantly rebalances itself? That question became Balancer.

From the start, Balancer pools could hold two to eight tokens in any ratio. An algorithm would automatically maintain those weights as prices moved. Every trade was both a market transaction and a rebalancing action. For liquidity providers (LPs), this meant earning fees while also keeping their portfolios aligned. Balancer was never just another DEX. It was built as a liquidity engine—a system where passive holding and automated portfolio management merged. The idea was technical and ambitious, and it quickly caught attention during the “DeFi Summer” of 2020.

This design set Balancer apart. Uniswap became the simple retail gateway. Curve specialized in stablecoins. Balancer aimed to be universal: multi-asset pools, custom weights, adjustable fees. LPs could shape their exposure however they wanted. An 80/20 ETH-DAI pool, for example, reduces forced ETH selling in a rally. A three-asset pool spreads risk across markets. In Balancer, trades double as rebalancing. Instead of copying centralized exchanges, it turned portfolio management itself into protocol logic. That choice defined its path forward.

ARCHITECTURE AND PRODUCT EXPANSION: FROM V1 TO V3

The turning point came with V2 in 2021. Balancer introduced a single Vault architecture: one contract holds all assets, while pools only handle pricing. The impact was big. Cross-pool trades no longer required multiple transfers. Gas costs dropped. Settlements became cleaner. Users could even keep balances in the Vault for future swaps, avoiding extra steps. Just as important, this setup made Balancer modular—different AMM logics could run inside the same system.

That flexibility fueled a wave of new products. Stable Pools offered near-zero slippage for stablecoins. MetaStable Pools supported assets like stETH that slowly drift from their peg. Liquidity Bootstrapping Pools (LBPs) redefined token launches. Projects like Radicle, HydraDX, and Perpetual Protocol used LBPs to distribute tokens fairly. Instead of a price pump by bots, the shifting weights created downward pressure, giving retail buyers a fairer entry. LBPs soon became an industry standard for project rollouts.

V3 pushed further. Boosted Pools let almost all idle assets earn yield in lending protocols. Hooks opened up programmability: developers could add custom features such as dynamic fees or automated risk controls. One early example, StableSurge Hook, raises fees when stablecoin pools slip off balance, drawing in arbitrage to restore the peg. With these tools, Balancer evolved into more than an AMM—it became a financial lab where others could experiment. From V1’s index-fund idea to V3’s yield hub, the protocol kept chasing higher efficiency and deeper composability.

GOVERNANCE AND TOKEN ECONOMY: BAL, VEBAL AND COMMUNITY GAME

If technology is Balancer’s base, its token economy is the bloodstream. BAL launched in 2020 not through a sale but via liquidity mining. The cap was set at 100 million, with most reserved for LP rewards. Weekly issuance started at 145,000 BAL. In 2022, the DAO introduced veBAL, a governance model inspired by Curve but with its own design. To vote, users must pair BAL with ETH in an 80/20 pool and lock for up to a year. This kept liquidity in markets while giving long-term holders stronger influence.

veBAL turned governance into a competition. Projects that wanted more BAL incentives had to convince veBAL holders, often by paying bribes. Whale accounts and smaller users clashed in votes. To prevent capture, the DAO added cooldown rules and perks for smaller voters. Meanwhile, protocol fees—taken from swaps and external yields—flow into the treasury. The community decides how to use them: grants, incentives, or buybacks. BAL stopped being just a reward token. It became the lever of governance and value capture. The design reflects Balancer’s central philosophy: balance—between capital and fairness, incentives and sustainability.

COMPETITION, RISKS AND THE ROAD AHEAD

Balancer has never been the largest DEX by volume, but it has carved out a role. Compared to Uniswap, it offers far more flexibility in pool design. Compared to Curve, it spans more use cases than stablecoins. Compared to Bancor, it avoids promising permanent impermanent-loss protection, instead giving LPs control through custom weights. That approach made Balancer strong in LSD liquidity and token launches. Beethoven X, Aura Finance, and other protocols even built directly on its design. By 2023, its TVL held near $1 billion—far from its bull-market peak, but proof of resilience in volatile times.

Looking at peers shows its niche clearly. Uniswap focuses on scale; concentrated liquidity drives efficiency but raises LP management costs. Curve dominates stable assets with extreme low-slippage pools, but beyond that it’s limited. Bancor tried single-sided deposits and IL protection but collapsed in 2022 under stress. Balancer, in contrast, is a factory for liquidity experiments. It doesn’t rely on one formula but offers modules others can build on.

Risks remain. The STA attack in 2020, the pool vulnerability in 2023, and the DNS hijack all tested user trust. Yet each crisis forced upgrades: tighter audits, faster emergency subDAOs, stronger infrastructure security. These lessons gave Balancer organizational memory on survival.

Looking ahead, Balancer V3 is positioning itself as “yield-driven liquidity infrastructure.” Challenges are real: Uniswap dominates trading volume, Curve controls stablecoins, and new challengers push fresh designs. But Balancer’s edge is its name—balance. Balance between innovation and safety, between capital and community, between short-term yield and long-term ecosystem health. If it keeps that philosophy, Balancer will likely keep a seat at the table in the next chapter of DeFi.

〈Moving Forward in Balance: How Balancer Reshapes DeFi Liquidity and Governance〉這篇文章最早發佈於《CoinRank》。